Tilted Forum Project Discussion Community - View Single Post

Rodney · 06-22-2006, 06:22 AM

The U.S. may be in for a weird ride. The 1930's may be a model of what could happen, but not a complete model. We could end up with deflation in some areas, but inflation in others.

Deflation will probably take place in real estate, certainly -- either by actual price drops, or by a prolonged stall in real estate prices while general inflation continues to rise. (So a $500K house today is a $500K house in seven years -- but the price of all other things has gone up by 50 percent).

Inflation could happen largely in the realm of imported goods and resources, _if_ the dollar continues to lose value against other currencies. If dollars grow less valuable, eventually the sheiks will up the price of oil to hold their profit margin. And this could ripple through society, reduce discretionary spending and thus perhaps cause job losses and a substantial recession.

In addition, much of the foreign capital that has supported the real estate boom would dry up if the dollar began to falter, or would at least demand a much higher interest rate. There might be higher interest rates in general, which would also have a deleterious effect on the economy.

Through the '80s and early 90s, interest rates were much higher than they are even now. If we went back to those rates in a hurry, this economy would take a major body blow. Our economy just isn't fundamentally as strong anymore.

06-22-2006, 06:22 AM	#34 (permalink)
Rodney Observant Ruminant Location: Rich Wannabe Hippie Town	The U.S. may be in for a weird ride. The 1930's may be a model of what could happen, but not a complete model. We could end up with deflation in some areas, but inflation in others. Deflation will probably take place in real estate, certainly -- either by actual price drops, or by a prolonged stall in real estate prices while general inflation continues to rise. (So a $500K house today is a $500K house in seven years -- but the price of all other things has gone up by 50 percent). Inflation could happen largely in the realm of imported goods and resources, _if_ the dollar continues to lose value against other currencies. If dollars grow less valuable, eventually the sheiks will up the price of oil to hold their profit margin. And this could ripple through society, reduce discretionary spending and thus perhaps cause job losses and a substantial recession. In addition, much of the foreign capital that has supported the real estate boom would dry up if the dollar began to falter, or would at least demand a much higher interest rate. There might be higher interest rates in general, which would also have a deleterious effect on the economy. Through the '80s and early 90s, interest rates were much higher than they are even now. If we went back to those rates in a hurry, this economy would take a major body blow. Our economy just isn't fundamentally as strong anymore. Last edited by Rodney; 06-22-2006 at 06:30 AM..